North Field gas keeps Qatar crisis stalemated: Fuel for Thought

The world’s largest gas field is at the nexus of a political stalemate between Qatar and three of its immediate Arab neighbors in the Persian Gulf region—Saudi Arabia, Bahrain and the UAE, along with Saudi ally Egypt.

Qatar’s huge offshore gas and condensate field, known in that country as North Field, straddles its maritime border with Iran, which calls the field South Pars. Together, the two sides of the field contain as much as 1.4 Tcf of proven gas reserves, making it the world’s largest conventional non-associated gas field.

Iran, Saudi Arabia’s regional arch-enemy, is very much a factor in the dispute between Qatar and the four Arab states that have recently started calling themselves the Anti-Terror Quartet. The so-called ATQ has accused both Qatar and Iran of funding terrorist groups and vociferously disapprove of Qatar’s friendly relations with Iran.

But because of North Field’s shared status, Doha is obliged to engage with Tehran. Moreover, because of North Field’s importance to global energy supplies neither Riyadh nor Abu Dhabi can realistically tell major international partners to choose between doing business with them or Qatar, quashing all hope of squeezing Qatar financially and economically.

On the basis of North Field reserves, tiny Qatar has grown its LNG exports from 1.9 million mt in 1997 to a record 78.7 million mt last year.

Major international oil companies including ExxonMobil, Shell, Total and ConocoPhillips hold substantial stakes in Qatar’s LNG production facilities and condensate refineries as equity partners with state-owned Qatar Petroleum.

It would also not benefit Abu Dhabi to drag North Field into the dispute with Qatar, with the UAE currently dependent on imports of North Field gas by undersea pipeline to supply roughly a quarter of its domestic gas demand.

As for Saudi Arabia and its offshore protectorate Bahrain, which so far do not import gas, neither are they likely to involve North Field in the dispute.

For Bahrain, which is building an LNG receiving and regasification terminal, that would mean erecting substantial hurdles to negotiating future contracts to import LNG from Qatar—its nearest and potentially lowest cost supplier of the fuel—on favorable terms.

For Riyadh, any serious interference with the Qatar’s massive LNG production and export business—the world’s largest—could antagonize the Asia-Pacific nations that import most of the kingdom’s exported crude, as they are also big importers of Qatar’s LNG.

North Field’s unparalleled ability to satisfy Asia’s growing appetite for gas as an environmentally preferred fuel, means Riyadh and Abu Dhabi cannot prevail on major Asian oil importers such as Japan, South Korea, China and India to boycott Qatar’s LNG.

Indeed, Qatar’s recent announcement of ambitious plans to increase its LNG export capacity by about 30% to 100 million mt/year by 2024 has been met with stony silence from its neighbors.

So even as the political standoff continues, commercial investment in Qatar, and Iran, continues. Total and Qatar Petroleum recently inaugurated their North Oil Co. joint venture, which became the operator of Qatar’s biggest offshore oil field, Al-Shaheen. Total has a 30% stake in NOC, which will initially produce up to 300,000 b/d of crude.

This deal followed an agreement between Total, China National Petroleum Corp. and National Iranian Oil Co. for Iran’s South Pars phase 11 project. Neither deal can have been welcome news to the ATQ coalition.

Total Chairman and CEO Patrick Pouyanne took the opportunity of the NOC launch to affirm Total’s support for Qatar.

“Total is fully committed to the development of its partnership with Qatar Petroleum both in Qatar and internationally, and is willing to further expand its cooperation in particularly with new projects in Qatar,” he said.

Pouyanne’s words suggested he had no intention of allowing local political squabbles to undermine Total’s expanding commercial interests in the Persian Gulf, which now span the entire region.

Beyond Iran and Qatar, Total is Saudi Aramco’s partner in the Jubail refinery and has a 37.5% interest in the Saudi Aramco Total Refining and Petrochemical joint venture. Total also has extensive ties with oil and gas ventures in the UAE including in its major onshore and offshore concessions.

Clearly Total, which began operating in Abu Dhabi in 1939 and in 2015 agreed to pay a $2.2 billion signing bonus for the onshore Adco stake under a new 40-year concession, is not a partner with which the UAE could easily unravel its deep-rooted relationship.

However, the French company also has an 80-year relationship with Doha, which could pose a major snag for both Abu Dhabi and Riyadh as they cast about for new ways to bring Qatar into line with their strategies.

So, Qatar continues to face some disruptions in its transportation sector that largely affect imports, but its vital LNG exports continue unabated. Barring a face-saving mediation breakthrough, the crisis is at stalemate.